The Macroeconomic Considerations of Rising Gas Prices on the Income and Substitution Effect

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Due in part to globalization, the macroeconomic environment in which the world operates, is now more dynamic. Consumers, particularly those in both emerging and developed nations, must now contend with a litany of adverse conditions that were generated outside the confines of their country. Currently, worldwide stimulus efforts on the part of countries are creating threats of worldwide inflation, currency devaluation, and the erosion of consumer purchasing power. As a result, the policies and actions of one nation affect the consumers in another nation either positively or negatively. Gas prices are no different in this regard. With worldwide money printing the price of commodities overall has risen. As the case indicates in its scenario, gas prices will double. This has adverse consequences in the manner in which consumers purchase products. Due in part to the income effect and substitution effect, consumers will react differently to various stimuli in the macroeconomic environment. In this instance, the doubling of gas prices will ultimately alter the attitudes, perceptions, and behaviors of consumers. As soon depicted in the scenarios above, rising gas prices will have an adverse effect on consumer behavior To begin, I believe it prudent to discuss the macroeconomic considerations of rising gas prices on both the income and substitution effect. As such, a brief but comprehensive introduction will be needed to help make inference concerning consumer behavior. To begin,

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